Yes, You Have To Pay Taxes On Downloaded Songs

States Which Tax Media Downloads:

• Alabama
• Arizona
• Colorado
• Hawaii
• Idaho
• Indiana
• Kentucky
• Louisiana
• Maine
• New Mexico
• South Dakota
• Texas
• Utah
• Washington
• West Virginia

So, if you're one of the millions who've been downloading songs via iTunes -- tax free -- and you live in one of the above states, come Tax Day, you are supposed to claim those downloads under something called a use tax, which is applied to out-of-state purchases.

Your State's Not Currently Taxing For Downloads?

"More states are beginning to tax downloaded products."

--Steve Krantz, Council on State Taxation

Huh????

Turns out, this "use tax" was never really enforced in the past, because until recently, digital sales were barely a blip on the radar in terms of retail sales.

However, in the most recent tax year (2005), online music downloads generated about $1 billion, and states are now looking for ways to increase revenue by taxing services like those provided by iTunes, Yahoo Music, and more.